Incidents:
On March 27, 2024, Huadian International released its 2023 annual report:
1) In 2023, the company achieved revenue of 117.18 billion yuan, +9.45% year-on-year; realized net profit of 4.52 billion yuan, compared to 100 million yuan in the same period last year. 2023Q4 achieved revenue of 26.45 billion yuan, or -3.5% year-on-year; realized net profit of 0.2 billion yuan to mother, compared to -223 billion yuan in the same period last year.
2) Dividends: In 2023, the company paid a cash dividend of RMB 0.15 (tax included) per share, for a total dividend of 1.53 billion yuan, calculated on net profit attributable to mother after deducting interest on perpetual bonds, with a dividend ratio of 44%.
Investment highlights:
The year-on-year decline in 2023Q4 coal prices+reduced impairment led the company's performance to turn a year-on-year loss into a profit. The company's net profit to mother improved sharply in 2023, mainly due to improved thermal power performance. According to our estimates, without considering the hydropower business, the net profit of thermal power (including combustion engines) in 2023 may be about 1.5 billion yuan (-4.1 billion yuan in 2022), and the net profit of kilowatt-hour electricity is 0.7 cents/degree (-2.1 cents/degree in 2022). 2023Q4's net profit returned to mother of 0.2 billion yuan, turning a year-on-year loss into a profit. First, due to improved thermal power performance, the company's overall gross profit margin was 4.7%, a significant improvement from -5.1% in 2022/Q4; second, due to reduced impairment, asset impairment losses amounted to 540 million yuan, a sharp decrease from 1.01 billion yuan in 2022/Q4. According to our estimates, without considering the hydropower business, 2023Q4's net profit for thermal power may be about -5.2 billion yuan (2022Q4 is -2.65 billion yuan), and the net profit for electricity is about -0.8 points/degree (2022Q4 is -5.5 points/degree), a sharp year-on-year loss reduction, which is 2.0 points/degree compared to 2023Q3, or due to the month-on-month rise in coal prices and asset impairment (the above sub-business profit data are all measured values).
Huadian New Energy's performance grew steadily, and the coal sector affected investment returns in 2023. The company's investment income in 2023 was 3.78 billion yuan, -21% year-on-year, mainly due to the 31% year-on-year return on coal investment. Specifically, Huadian New Energy contributed 2.95 billion yuan in investment income, +14% year on year; coal companies contributed 930 million yuan in investment income, or -31% year over year, of which Huadian Coal Industry was 580 million yuan, or -41% year over year. 2023Q4's investment income was 640 million yuan, or -26.5% over the same period, of which Huadian Xinneng was 410 million yuan, and coal and other participating companies were 220 million yuan (the investment income of coal and other participating companies in 2022 are all estimated values).
The company's net operating cash inflow in 2023 was 13.25 billion yuan, +37.3% year-on-year, mainly due to improved operating performance. As coal and electricity performance improves, the company's cash flow is expected to continue to recover.
Profit forecast and investment rating: According to the latest performance, we adjusted the profit forecast. The company's net profit for 2024-2026 is estimated to be 65.0/69.3/7.33 billion yuan, respectively, and the corresponding PE is 11/10/9 times, respectively. Looking ahead to 2024, the company's thermal power performance is expected to improve further; Huadian Xinneng Green Power's installed equipment is expected to further contribute to growth and maintain a “buy” rating.
Risk warning: Policy progress falls short of expectations; new installed capacity falls short of expectations; coal prices have risen sharply; electricity prices have been lowered; incoming water has dried up; there may be errors in estimates, based on actual values; increased industry competition; risk of impairment, etc.